Skip to content
 

Psychology can be improved by adding some economics

On this blog I’ve occasionally written about the problems that arise when economists act as amateur psychologists. But the problem can go the other way, too. For example, consider this blog by Berit Brogaard and Kristian Marlow (link from Abbas Raza). Brogaard and Marlow give several amusing stories about ripoffs (a restaurant that scams customers into buying expensive bottles of wine, a hairdresser that sucks customers into unnecessary treatments, a ghostwriter who takes thousands of dollars in payments and doesn’t do the job, etc.). Then they ask, “How did it happen? Why did you act in this impulsive way? Why didn’t you learn your lesson the first time around? Do you have some kind of brain damage?”

They continue with some discussion of the ventromedial prefrontal cortex, the anterior insula, etc etc etc., and then conclude with the following advice:

Is there anything we can do to avoid these moments of crazy decision-making? Yes but only by intentionally turning on our hypercritical attitude before entering potential sales deals. Make it a habit to take a breather and think about a purchase before completing it. When the waiter brings a more expensive wine, ask to see the wine list again. You might end up going with the more expensive wine but looking over the list will give you a chance to think. When your hairdresser all of a sudden wants to make you his regular on Tuesdays, say that you will call in and make the next appointment. Perhaps your next appointment will be Tuesday, but you will have had a chance to make your own decision. . . .

That’s all fine but I think they’re missing the point. Economists talk about the best alternative to a negotiated agreement. I think in many of these fraud situations, a key problem is that the person getting ripped off is afraid of losing out. Rather than just giving generic advice to slow down, I’d suggest a more specific recommendation, that in a situation where there is a choice, don’t be afraid of saying no. Or, consider the consequences of saying no. I’m guessing that a key part of people getting suckered is that they’re afraid of losing out on some opportunity.

I’m reminded of a story from a couple years ago where a science writer described certain political behavior as the product of irrationality and “unconscious bias.” In that case, it was political science rather than economics that was being neglected in favor of purely psychological explanations.

5 Comments

  1. Mark Palko says:

    I am contractually obligated to mention that the groundwork for the highly productive field of behavioral economics (which is providing some of the best answers to these questions) was laid down by psychologists.

    “I think in many of these fraud situations, a key problem is that the person getting ripped off is afraid of losing out. Rather than just giving generic advice to slow down, I’d suggest a more specific recommendation, that in a situation where there is a choice, don’t be afraid of saying no.”

    This is almost exactly what you’ll get from many marketing psych texts. My go-to example, Cialdini, had an entire section on perceived scarcity and the way marketers use it thirty years ago, along with suggested counter-strategies for resisting the manipulation. (the sections on authority and social proof are also relevant.) All of it along the lines you’d suggest and discussed in detail.

    It is certainly true that there are cases where psychologists can learn a lot from economists, but this example only shows that psychologists can sometimes learn a lot from other psychologists.

  2. Andrew wrote: “I’m guessing that a key part of people getting suckered is that they’re afraid of losing out on some opportunity.” That’s a psychological explanation, not an economic one.

    The blog author’s background is philosophy and neuroscience, NOT psychology. It looks like she read some neuro studies and then basically just spitballed about what people might do to avoid making bad decisions. As a psychologist, if I was going to tell people “do X to avoid outcome Y,” I’d want to see a study that actually tested the effect of behavior X on outcome Y.

    Maybe the title of this post should have been “Psychology can be improved by adding some psychology.”

  3. Luís Eugênio Xavier says:

    Microeconomics is deeply based on psychology, math and logic. Andrew’s explanation means that if you are facing a situation in which you can be ripped off, you should, as a rational agent, evaluate the utility that involves the opportunity, so you can make your best decision among a range of possibilities.

  4. ezra abrams says:

    I got bullied into buying an exspensive bottle of wine by the waiter

    geez, stop whining and grow a pair
    Also, STOP PATRONIZING a resturant that treats you that way, I mean, geez, a good place wouldn’t do that would it ???

    PS: anyone who spends 2,300 dollars on a laptop, or 1,000 a month on hairstyling is either stupid, or trying to impress someone or to rich to care.
    I’ve bought a lot of laptops, all wintel cause i loathe apple more then google or MS (I know a tough choice), and the idea that you need to spend more then 800 dollars, maybe 1100 at the very high end – is ludicrous; you are just showing off.

    EG
    I’m in the elevator at MIT with two famous profs, who are having a little famous-mit-prof-one-upsmanship game.
    The winner is: Last time I was in Bangkok, I discovered this great duty free shop….

  5. numeric says:

    I was first introduced into economics in an undergraduate psychology class, through the presentation of “exchange theory”. For those who aren’t social psychologists, this is the theory that attractive young women “exchange” their companionship for the benefits of a relationship with a much older male, who happens to have sizable economic assets. Alas, the benighted social psychologists failed to extend this key insight into a paradigm defining all human actions and relationships. I had to go over to economics to get that.